Question

In: Accounting

A production manager needs to develop a production schedule to meet the following demand: Period 1...

A production manager needs to develop a production schedule to meet the following demand:

Period 1 2 3 4 5 6
Demand 600 600 800 1000 1200 600

Productions costs are as follows: (a) regular time: $3 per unit. (b) over-time: $5 per unit. (c) subcontract: $7 per unit. (d) Inventory carrying cost = $2 per unit per period (e) Back-order costs = $5 per unit per period.

Suppose some workers have retired, and the regular production rate can be only 700 units per period. Further, no subcontracting is allowed. However, it is possible to schedule production on an over-time basis

.

Solutions

Expert Solution

We can calculate the cost in 2 scenarios:

Scenario 1 - No inventory carried forward. Inventory produced to meet demand with over-time hours

Scenario 2 - Inventory carried forward. Inventory produced with over-time hours only for differential to demand

Subcontract cost is not relevant since subcontracting is not allowed.

Back-order cost is not helpful since demand is with gradual increase and can only be fulfilled by overtime.

Scenario 1 - No inventory carried forward. Inventory produced to meet demand with over-time hours

Period 1 2 3 4 5 6 Total
Demand 600 600 800 1000 1200 600 4800
Regular Production 600 600 700 700 700 600 3900
Overtime Production 0 0 100 300 500 0 900
4800
Regular Time Rate $           3 $           3 $           3 $           3 $           3 $           3
Regular Cost $    1,800 $    1,800 $    2,100 $    2,100 $    2,100 $    1,800 $ 11,700
Regular Time Rate $           5 $           5 $           5 $           5 $           5 $           5
Regular Cost $         -   $         -   $       500 $    1,500 $    2,500 $         -   $    4,500
Total Cost $    1,800 $    1,800 $    2,600 $    3,600 $    4,600 $    1,800 $ 16,200

Scenario 2 - Inventory carried forward. Inventory produced with over-time hours only for differential to demand

Period 1 2 3 4 5 6 Total
Demand 600 600 800 1000 1200 600 4800
Inventory Balance C/F 100 200 100 0 0 0 400
Regular Production 700 700 700 700 700 600 4100
Overtime Production 0 0 0 200 500 0 700
4800
Regular Time Rate $           3 $           3 $           3 $           3 $           3 $           3
Regular Cost $    2,100 $    2,100 $    2,100 $    2,100 $    2,100 $    1,800 $ 12,300
Regular Time Rate $           5 $           5 $           5 $           5 $           5 $           5
Regular Cost $         -   $         -   $         -   $    1,000 $    2,500 $         -   $    3,500
Carrying Cost Rate $           2 $           2 $           2 $           2 $           2 $           2
Carrying Cost $       200 $       400 $       200 $         -   $         -   $         -   $       800
Total Cost $    2,300 $    2,500 $    2,300 $    3,100 $    4,600 $    1,800 $ 16,600

Based on the above calculations, Scenario 1 has lesser cost and is preferable.


Related Solutions

A manager needs to hire short-term employees to meet production demands. The manager would like to...
A manager needs to hire short-term employees to meet production demands. The manager would like to hire one of three possible short-term workers. Ten hours are demanded with 50% probability, 20 hours are demanded with 30% probability, and 30 hours are demanded with 20% probability. The table below represents the alternatives and possible states of nature. States of Nature (Worker hours demanded) Alternatives 10 hr total pay 20 hr total pay 30 hr total pay Worker 1 $1,000 $1,800 $2,400...
Heather Adams, production manager for a Newfoundland exercise equipment manufacturer needs to schedule an order of...
Heather Adams, production manager for a Newfoundland exercise equipment manufacturer needs to schedule an order of 50 items of A which are to be shipped in week 8 and 40 items of B which are to be shipped in week 6. In parenthesis are indicated quantity required for each component. The inventory on hand is for week 1 only. Below is the information about the products. Item Lead Time On Hand Inventory Components A 1 10 D(1); F(2) B 2...
Duo Co needs to increase production capacity to meet increasing demand for an existing product, ‘Quago’,...
Duo Co needs to increase production capacity to meet increasing demand for an existing product, ‘Quago’, which is used in food processing. A new machine, with a useful life of four years and a maximum output of 600,000 kg of Quago per year, could be bought for $800,000, payable immediately. The scrap value of the machine after four years would be $30,000. Forecast demand and production of Quago over the next four years is as follows: Year 1 2 3...
A company needs to purchase several new machines to meet its future production needs. It can...
A company needs to purchase several new machines to meet its future production needs. It can purchase three different types of machines A,B,andC. Each machine A costs $80,000 and requires 2,000 square feet of floor space. Each machine B costs$50,000 and requires 3,000 square feet of floor space. Each machine C costs $40,000 and requires 5,000 square feet of floor space. The machines can produce 200, 250 and 350 units per day respectively. The plant can only afford $500,000 for...
A province needs to decide on the number of residency openings required to meet the demand...
A province needs to decide on the number of residency openings required to meet the demand of active physicians in practice. It was determined that physicians have an active professional life of 26 years; the currently the province needs 29000 doctors to be actively practicing. In equilibrium, on average, the number of doctors retiring every year is equal to the number of doctors admitted to residency. (Round your final answer to the nearest two places of decimal) (1) How many...
Problem 8-14 Develop a production schedule to produce the exact production requirements by varying the workforce...
Problem 8-14 Develop a production schedule to produce the exact production requirements by varying the workforce size for the following problem.      The monthly forecasts for Product X for January, February, and March are 1,010, 1,490, and 1,240, respectively. Safety stock policy recommends that half of the forecast for that month be defined as safety stock. There are 22 working days in January, 19 in February, and 21 in March. Beginning inventory is 550 units.      Manufacturing cost is $200 per unit,...
The following schedules shows the demand and supply for a product. Schedule 1: Demand of individual...
The following schedules shows the demand and supply for a product. Schedule 1: Demand of individual consumers Schedule 2: Supply from individual producers Schedule 1 Schedule 2 Price Consumer X Consumer Y Consumer Z Price Producer A Producer B Producer C 10 40 40 60 10 20 20 20 20 35 35 50 20 25 30 25 30 30 30 40 30 30 40 30 40 25 25 30 40 35 50 35 50 20 20 20 50 40 60...
Given the production possibility schedule, answer the following questions. Production Possibility Schedule Product                        &n
Given the production possibility schedule, answer the following questions. Production Possibility Schedule Product                                A             B             C             D             E              F                                                                           Tanks                                    0            1              2              3              4              5                                                              Automobiles 1,000       950 850 650 350 0 (a) Graph the PPF for this schedule. What happens to the opportunity cost of each additional tank in terms of automobiles as one moves from A to F? What accounts for this? (b) Given the production possibility schedule, what can be said about a...
We are preparing a master production schedule for a given item. For this item the demand...
We are preparing a master production schedule for a given item. For this item the demand forecast and booked orders are as follows: Week 1 2 3 4 5 6 Demand Forecast 60 60 80 80 80 50 Booked Orders 58 63 52 20 4 0 Our Week 0 projected on-hand is 132 units. Lead time for this item is 2 weeks, and the order policy for this item is a fixed quantity of 180 units. When this master schedule...
Use the following table to answer the question. Dave's Production Possibilities Schedule Simon's Production Possibilities Schedule...
Use the following table to answer the question. Dave's Production Possibilities Schedule Simon's Production Possibilities Schedule Pounds of Green Beans Pounds of Corn Pounds of Green Beans Pounds of Corn 0 160 0 80 20 120 40 60 40 80 80 40 60 40 120 20 80 0 160 0 Assume Dave consumes 40 pounds of green beans and 80 pounds of corn without trade. Also, assume that Simon consumes 80 pounds of green beans and 40 pounds of corn...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT